Reconciling Maine tax code to federal changes could cost state $81 million

AUGUSTA, Maine — Maine’s budget problems could become $81 million more difficult during the next two-year budget cycle if the state chooses to conform fully with changes made to the federal tax code as part of the start-of-the-year deal reached in Congress to avoid the fiscal cliff.

The American Taxpayer Relief Act passed by Congress at the beginning of the year introduced an array of changes to the U.S. tax code. It increased the standard deduction amount for married couples filing joint tax returns, extended deductions teachers can claim for paying classroom expenses out of their pockets, made more interest paid on student loans tax-deductible and allowed businesses to continue depreciating the value of certain property for tax purposes.

“Conformity will result in a tax cut but at a cost of reduction in revenue of approximately $81 million,” said Rep. Peggy Rotundo, D-Lewiston, the House chairwoman of the appropriations panel. “That would be $81 million the state would not have for things like schools, revenue sharing, whatever.”

The LePage administration is preparing to submit legislation that would conform the state tax code with federal tax code changes. But Finance Commissioner Sawin Millett said the administration will likely only propose to conform with provisions that won’t have a major impact on the state’s bottom line and add to the state’s budget troubles.

“It’s a huge challenge to look at $81 million,” Millett told Appropriations Committee members. “In the best of all worlds, we’d like to conform to everything. In this go-around, it’s likely beyond the bounds of expectation.”

Maine taxpayers are filing tax returns that have been prepared with an assumption that the state will reconcile its tax code with the recent federal changes, Allen said, though the bulk of federal tax code changes would affect taxpayers when they prepare next year’s tax returns. If Maine lawmakers opt not to conform the state tax code to federal changes, a limited number of taxpayers might have to amend their tax returns this year, he said.

Maine residents would see a tax cut and would have an easier time preparing their taxes if lawmakers conformed Maine’s tax code with recent changes to the federal code, said Rep. Dennis Keschl, R-Belgrade.

“Any deviation enhances the complexity for the taxpayer who’s filling out their forms,” he said. “The simpler you can make it, the better off everybody is.”